The first worker changes the books more than the second one does. Set up the records before the first payment, and the year-end forms and questions are much easier.

First, describe the work

Write down what the person will do, who decides how and when it's done, who supplies the tools, how they're paid and whether the work is ongoing. Classification follows those facts, not the label on the agreement.

  • Federal: the IRS looks at three categories of evidence: behavioral control, financial control and the type of relationship. See Independent contractor (self-employed) or employee? (opens in a new tab)
  • New Jersey: under its unemployment compensation law, New Jersey applies the ABC test. A worker is an employee unless all three conditions are met: the worker is free from control or direction over the work; the work is outside the usual course of the business, or outside all of its places of business; and the worker is customarily engaged in an independently established business. See the NJ Department of Labor's guidance (opens in a new tab).

The two tests can reach different answers for the same worker. This checklist gives no classification conclusion.

Records for a contractor

  • A signed agreement that describes the work
  • A Form W-9 with the contractor's legal name and taxpayer identification number, collected through a secure channel before the first payment
  • Invoices, and a payment history by contractor
  • How each payment was made. Payments by credit card or through a third-party payment network are reported by the payment settlement entity on Form 1099-K, not on Form 1099-NEC (IRS instructions (opens in a new tab)).

Records for an employee

An employee means payroll. Payroll setup and operation are considered case by case under a separate written engagement and may be referred to an independent specialist. For the books, keep the payroll provider's report for each pay period and its year-end totals; the provider will tell you which forms it needs from the employee.

Who keeps what

  • Who collects the Form W-9 or the payroll provider's forms, and where they're stored (not in email)
  • Who records each payment in the books
  • Who prepares the year-end information returns for contractors

What happens next

Describe the work you're hiring for through the contact form. Never put a worker's identification number in the inquiry.